You are here:

Huff and puff

Created:
15 December 2006

The housing market has proved to be remarkably resilient over the past 12 months, despite numerous predictions made at the beginning of the year of an inevitable slowdown. In fact, a resurgence of house-price growth over the past nine months has caught most forecasters completely off guard - some indices put the underlying rate of annual growth close to double digits. And this is despite the Bank of England's best attempts to subdue prices by raising interest rates to 5 per cent.

Advertising

The buy-to-let story is very similar. Yields fell rapidly between 2001 and 2004, but they have remained steady since, at about 4.5 per cent to 5.5 per cent net, or 3.5 per cent to 4 per cent in central London, according to Richard Donnell, director of research at Hometrack. "The rental market is strong and pushing up, largely due to demand-side pressure from those who can't afford to buy a property, and from immigration," he says. "Equally, there is not much stock coming on to the market - about a half of the buy-to-let figures are actually remortgages." This demand-supply imbalance means that buy-to-let remains an attractive proposition, with "total returns, ungeared, of around 8-9 per cent", according to Mr Donnell.

So there is no shortage of lenders offering specialist buy-to-let mortgages. In fact, increased competition has made it easier than ever to finance a second property. "Rates are coming down and there is a far wider range of products," says David Hollingworth, at independent broker London & Country.

Until recently, for example, a lender would insist that the rent received on a property was at least 130 per cent of the interest payments on the loan. Now some lenders are happy to lend on the basis of 100 per cent coverage - as long as the rent equals the interest payments, you will get your money. Of course, you need to be very careful in this instance, as a rise in interest rates or long void periods would mean repaying part of your mortgage from other sources of income.

Despite the now "ferociously competitive market", as Mr Hollingworth describes it, you will still pay a premium over a standard residential mortgage - either a higher rate or a higher fee - and a bigger deposit. But in almost every other way, buy-to-let mortgages operate in the same way as their residential counterparts, with the same options available.

Commercial mortgages

In many ways, a commercial mortgage is very similar to a residential loan, in that you use a real property as collateral against a loan to either buy or refinance that property. You can also use a commercial remortgage as a line of credit for business purposes.

Like a residential mortgage, the interest rate may be fixed or variable. The maximum loan to value is generally around 80 per cent, and the rate you'll be offered is decided on the merits of the particular application.

The lender's decision will be influenced by various considerations, says Paul White, at broker Belgravia. "If the building is already let out, the quality of the tenant is very important - if it's a tenant that the lender has heard of, it will be easier to get a loan," he says. Some lenders prefer to lend only when the building is to be let out rather than used by the applicant as a business premises. Other factors include the type of trade or industry, and the directors' experience.

"Small enterprises are probably better off applying to their own business bank where they already have a track record," continues Mr White. In other cases, a specialist broker should be able to match the type of application to the right lenders.

Company Rate Term Fee Redemption Redemption
penalty Notes
Bradford & Bingley 4.94% For 2 years 2% (min £599) 1st 2 years Any number of properties within total advance
of £2m. Flexible option
Bradford & Bingley 5.19% To 31.12.09 1.5% of adv (min £599) To 31.12.09 Any number of properties within total advance
of £2m. Flexible option
Coventry BS 5.40% - £725 No penalty Maximum 5 properties within total advance of
£1m. Not FTB
Giraffe Money 5.33% To 31.1.12 1.5% of adv To 31.1.12 Maximum 15 properties within total advance of
£2.5m. Not FTB
Northern Rock 5.39% - 1.5% of adv No penalty Maximum 10 properties within total advance of
£3m
Norwich & Peterborough BS 4.38% For 2 years 0.5% of advance 1st 5 years Any number of properties within total advance
of £2m. Not FTB.
Portman BS 3.99% To 31.1.09 0.5% of adv (min £595) To 31.1.13 Any number of properties within total advance
of £5m
Portman BS 4.99% To 31.1.10 None To 31.1.12 Any number of properties within total advance
of £5m
West Bromwich BS 4.69% To 28.2.09 0.5% of adv To 29.2.12 Any number of properties within total advance
of £10m
West Bromwich BS 4.93% For 2 years 2% of adv No penalty Any number of properties within total advance
of £10
Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance
B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment

Source: www.moneyfacts.co.uk Date Compiled: 12 December 2006 Key: ASU = Accident, sickness and unemployment insurance B+C = Building contents insurance FTB = First-time buyer HLC = High lending charge U = Unemployment

  • Back to top

Products and Services from Barclays Stockbrokers.

The UK’s No.1 Stockbroker

Stocks and Shares

Contracts for Difference

Financial Spread Trading

Gilts and Bonds

Funds Market

FX

Education Centre

Trading Simulator

Advertorial Feature

Spread your risks with spread trading

With so many big moves in the world's financial markets, there have seldom been more opportunities around for spread traders. Isn't it time you joined them?

by Dominic Piccarda